MEDIA RELEASE
27 March, 2007

CEOs IN PUBLIC SECTOR EARNING MORE THAN THOSE IN PRIVATE SECTOR, SURVEY FINDS

Incidence of performance based pay still lagging the world

The CEOs of public sector organisations in New Zealand are now earning more than their private sector counterparts, according to the country’s largest annual survey of chief executive remuneration.

The recently-released survey, conducted by Sheffield Reward Consulting, found the median total salary package of a public sector CEO was $255,000 versus $248,291 in the private sector.

Jarrod Moyle, Sheffield’s Reward Team Leader, says while public sector CEO salaries have been on the increase for several years, it is only recently that they have they overtaken the private sector.

“This is a significant finding and reflects the fact salaries have needed to increase in order to attract top talent to public sector organisations.
It clearly puts paid to the myth that if you want to earn good money, you need to work in the private sector.”

The survey also found New Zealand continues to lag the world when it comes to CEO performance pay, severely restricting the earning capacity of the country’s leaders and holding us back when it comes to competing in the global economy.

“Only 56% of CEOs received some form of performance-based pay in 2006, compared to 69% in 2003. For those who received it, performance-based pay comprised approximately 14% of their package.

“Comparatively, offshore CEOs receive an average of 39% of their package based on performance. In the US, the remuneration packages of CEOs include 62% based on performance, in the UK 35% and in Australia 30%.”

Mr Moyle says CEOs not only have the ability to earn more with a higher performance-related component, they are also likely to perform better if their salary is closely aligned to how well the company is doing.

“A well designed performance pay system remains a valuable tool for driving a performance culture. If a company has tools in its toolbox which will help drive business growth, why would you not use them?”

When Sheffield carried out the survey in 2003, the only other country with such a low percentage of performance pay was China with18%, compared to 15% in New Zealand. However, in just two years, the structure of CEO packages in China changed dramatically with the performance-related part rising to 56% in 2005.

Mr Moyle believes Kiwis are generally risk averse and would rather earn less money and know that it is guaranteed rather than rely on high at-risk performance payments.

“On the whole, New Zealanders are not as motivated by financial gain as some of our colleagues overseas. In New Zealand, many Kiwis will work hard to get to a certain level of net worth and are then content to simply maintain this lifestyle.

“While we don’t want to emulate the corporate greed we sometimes see offshore, we do need a greater drive among our leaders to achieve business success,” he says.

Mr Moyle says the low performance component in salary packages could also be attributed to the low level of salary disclosure required by New Zealand-listed companies, compared to other countries.

“Listed companies here are only required to reveal the number of employees who earn over $100,000. However in Australia, for example, listed companies disclose the base salary, bonus, superannuation and equity-based payments of all directors, the CEO and key management personnel, including the salaries of their five highest paid executives.”

He says the low level of salary disclosure in New Zealand has meant executive pay has become “a big mystery” with companies not knowing what the industry norm is and how they stand up against their competitors.

“This needs to change in order for New Zealand companies to ensure best practice in the global community.”

Other key survey findings include:

• CEOs in Auckland receive higher salary packages than those in other parts of the country with a median total salary package of $297,670
• CEO salary packages in Wellington are catching up to Auckland, with a median total salary package of $285,000, largely due to the increase in public sector salaries
• 80% of CEOs who report offshore receive some sort of performance-based pay compared to 60% for CEOs whose head office is based in New Zealand.
• CEOs of publicly listed companies receive higher remuneration than those in non-listed companies. This is partly due to the fact many of the listed companies in the sample are much larger than the non-listed companies.
• Only 9% of CEOs are female.

The typical CEO in New Zealand is:

• Aged between 45 and 57
• Male
• Has a tertiary qualification
• Has been in the position for less than five years
• Receives a total remuneration package of $255,000
• Earns a median base salary of $181,000
• Has the use of a company car or receives cash in lieu
• Has four weeks annual leave.

Sheffield’s CEO survey includes data from 504 chief executives, managing directors and general managers in a variety of organisations and industry sectors throughout New Zealand. It is the first of a series of executive surveys rolled out by the company annually.

Ends